Hungary and the Baltic states of Latvia and Lithuania are the European emerging markets most at risk of a ratings downgrade if their economies suffer a ``hard landing,'' Moody's Investors Service said in a report, cited by Bloomberg.

A slump in economic growth coupled with accelerating inflation ``would probably cause a significant increase in public debt,'' eroding the nations' ability to recover ``in a reasonable period of time,'' Moody's said in a report today. That ``would place negative pressure on ratings and could lead to downgrades.''

Moody's assessed the resilience to a sharp economic downturn of 11 emerging economies ranging from Aa1-rated Iceland to Baa3- rated Romania, Bulgaria and Croatia. The ratings company described the 11 nations as a ``danger zone,'' experiencing an ``increase in macroeconomic tension,'' fast economic growth, high external deficits and rapid property-price increases.

``The probability of hard landings has increased with the recent turmoil in global capital markets,'' Moody's said. ``Sustained current account deficits can only exist in symbiosis with capital inflows. An abrupt slowdown of capital flows into the surveyed countries would force an economic adjustment that could be challenging and difficult.''

Hungary's economy grew a preliminary 1.6 percent in the first quarter and inflation in April was 6.6 percent. The Latvian economy grew 3.6 percent in the first quarter, slowing from 8 percent in the previous three months, while April consumer-price growth accelerated to 17.5 percent from 16.8 percent in March.

Lithuanian gross domestic product rose 6.4 percent in the first three months of the year, compared with 8 percent in the fourth quarter of 2007, and inflation last month picked up to 11.7 percent from 11.3 percent.

Assessing the emerging nations for their resilience to a hard landing, Moody's said Iceland, Estonia, Bulgaria, Kazakhstan and the Czech Republic have ``excellent financial strength for their rating levels and should remain resilient even when faced with a much higher degree of macroeconomic stress.''

Debt levels are not projected to increase significantly ``and liquidity is not a serious concern, even in a severe hard landing scenario.'' Their governments' policies have been forward-looking and they have fiscal reserve funds that could help them ``remain comfortably within their ratings categories.''

Romania, Poland and Croatia are ``in a moderately strong financial position.'' They ``could undergo a medium-to-large increase in public debt,'' Moody's said.

The Moody's report also looked at the potential for a banking crisis in the 11 nations, triggered by the global credit squeeze, and concluded that Bulgaria, Romania and Kazakhstan face the highest risk of crises, which ``have often followed strong growth in credit and asset prices.''

Croatia has a medium risk of a banking crisis, while the remaining countries have low risk, the report said. Property prices in Bulgaria and Romania soared more than 50 percent in 2007, the first year after European Union entry.